Credit card lenders 'targeting people struggling with debt'

Credit card lenders appear to be targeting people struggling with unaffordable levels of debt, according to a new report calling on Britain’s financial watchdog to intervene.

Research from Citizens Advice finds almost one in five people struggling with debts have had their credit card limit raised without them requesting it. The charity has demanded the Financial Conduct Authority bans the practice, amid growing concerns over a boom in lending.

Unsecured lending is returning to levels unseen since the 2008 financial crisis, raising alarm bells at the Bank of England that consumers may struggle to repay loans in another economic downturn, thus putting financial stability at risk.

The Citizens Advice chief executive, Gillian Guy, said: “It’s clear that irresponsible behaviour by some lenders is making people’s debt situation worse – such as offering more credit when they already have thousands of pounds of unpaid debt.”

She said lenders must act responsibly to direct people struggling with debt towards free and independent advice and support – rather than offering them more credit.

People with long term outstanding balances were more likely to have their spending limit raised, with 18% of struggling credit card users seeing their limit increased in the past year without requesting it, compared to 12% of all credit card holders, Citizens Advice found.

People with credit card debts were also more likely to get into long-term debt than those with personal loans, and were less able to pay their debt down.

One pensioner helped by the charity was repeatedly called by firms offering more credit cards, despite the fact that she could only afford to make minimum repayments on her existing debts.

She used these to pay essential bills and ended up with a total of 21 credit cards and debts totalling £70,000. Citizens Advice said it has helped 66,000 people with over 140,000 credit card debt problems in the last year.

The most recent figures from the Bank of England showed total levels of consumer debt grew by 10% in the year to June, to almost £201bn. The last time outstanding debt reached those levels was December 2008, while more than a third of the current levels of outstanding borrowing – £68.5bn – is on credit cards.

The rapid growth in borrowing on credit cards, car finance and personal loans was among reasons behind a move by Threadneedle Street earlier this year forcing banks to strengthen their financial positions. The FCA is preparing fresh rules to protect consumers from spiralling debt, as it looks to crack down on the high cost of overdrafts and review the booming car loan market.

The regulator is moving to force firms to contact customers with persistent debt problems after 18 months, to ask them if they can manage faster repayments. Those that struggle for another 18 months would then be put on a repayment plan. The watchdog estimates that 3.3 million people have fallen into a persistent credit card debt spiral.